Market could see impact on fund raising by NBFCs and HFCs
Despite the heathy activity seen in the securitisation market in Q4 FY2021, the rising Covid-19 cases may again create uncertainty among the investors, cautioned Abhishek Dafria, Vice President and Head – Structured Finance Ratings at ICRA Ratings Ltd.
On a positive front, the lockdowns announced by a few State Governments at present are less restrictive in comparison to the nationwide lockdown seen last year, he noted.
“Nevertheless, an unabated increase in the Covid cases is likely to bring about fears of harsher lockdowns which could impact the asset quality of retail loans especially for unsecured loans such as in the micro-finance sector.
“This in turn would impact the fund-raising ability of the non-banking financial companies (NBFCs) and housing finance companies (HFCs) through securitisation of their assets. Successful implementation of the vaccination program and ability of government agencies to arrest the rising infections would remain critical in the near term,” said Dafria.
For FY2021, securitisation through Direct Assignment (DA) transactions (bilateral assignment of pool of retail loans from one entity to another) accounted for about two-thirds of total annual volumes, in line with the trend seen over the past few years. The balance one-third is through Pass Through Certificate (PTC) transactions (loans are sold to an SPV which issues PTCs). During the year, securitisation of mortgage-backed loans and gold loans found favour with investors, primarily due to secured nature of the underlying loans. On the other hand, volumes dropped for unsecured loans due to the higher risk perception.
The collection efficiencies have reached close to pre-covid levels for almost all the securitised pools, added Sachin Joglekar, Assistant Vice President, ICRA.
“This dispelled investor wariness which was at its peak during the moratorium period. As collections stabilised, investors returned back to the market which is evident from the growth that has been seen in Q4 FY2021, partly driven by the need of banks to purchase priority sector qualifying assets.
“The increased volumes were also aided by higher funding requirement of originators as they restarted retail loan disbursements. In the event that the new wave of Covid-19 cases does not cause any major economic disruption, ICRA expects annual securitisation volumes to increase by 40-50% in FY2022 compared to FY2021,” said Joglekar.
ICRA has estimated that NBFCs and housing finance companies HFCs securitised volumes at about Rs.40,000 crore of their loan assets in Q4 FY2021, which is similar to volumes seen in Q4 FY2020. This implies a sharp quarter-on-quarter (Q-o-Q) growth of ~60% which comes on back of a similar Q-o-Q growth witnessed in Q3 FY2021.
Due to the Covid-19 pandemic and resultant nationwide lockdown, securitisation volumes had seen an unprecedented fall in H1 FY2021 after two successive years (i.e. FY2019 and FY2020) of healthy volumes close to Rs.2 lakh crore each. As the economic activities gradually resumed and loan disbursements gained momentum, even reaching pre-Covid levels for some NBFCs, the securitisation market saw a healthy uptick in volumes during H2 FY2021.
As per the rating agency’s estimates, the securitisation volumes for FY2021 were at about Rs.85,000 – Rs.90,000 crore, of which volumes in Q4 itself contributed nearly 45%. #banking #investment #securities #economy /fiinews.com
